Bretton Woods Agreement And The Move Towards Fiat Money
// 8 апреля 2021 // Без рубрики
A devastated Britain had little choice. Two world wars had destroyed the country`s main industries, which paid for the import of half of the food and almost all of its raw materials except coal. The British had no choice but to ask for help. It was only when the United States signed a 4.4 billion pound British aid agreement on 6 December 1945 that the British Parliament ratified the Bretton Woods Agreements (which took place later in December 1945).  As chief international economist at the U.S. Treasury, Harry Dexter White designed the 1942/44 International Liquidity Access Project that rivals Keynes` plan for the British Treasury. Overall, White`s system tended to favour incentives to create price stability in the world`s economies, while Keynes wanted a system that promoted economic growth. The “collective agreement was a huge international undertaking,” which took two years before the conference to prepare for it. It consisted of numerous bilateral and multilateral meetings to find a common basis for determining the policies that would be behind the Bretton Woods system. What has worked well is the balance-of-payments adjustment mechanism between the major countries. The discretionary policy of their central banks, which focused on stabilizing their respective liquidity ratios and maintaining internal convertibility, enabled this result.
There was no contradiction between the internal (convertible) objective and the external objective of balance of payments. Major central banks have sometimes interfered in the free movement of gold, resulting in changes in transportation costs. Thus, the Reichsbank changed the location of its golden window from Hamburg to Berlin. Nevertheless, the effects of these forms of capital controls on gold flows must be minimal, as suggested by the fact that more than 95% of the variance in annual international gold flows to Germany from 1878 to 1912 can be explained without the need for “capital controls” (Somma and Turivallio (1987b)). This decrease in money would reduce inflationary pressures. In addition to the use of gold at that time was the pound sterling. On the basis of the dominant British economy the pound became a reserve, transaction and intervention currency. But sterling did not rise to the challenge of serving as the world`s leading currency, given the weakness of the British economy after the Second World War. What has proven to be largely reflecting the preferences of the United States: a subscription and quota system, integrated with the IMF, which should not itself be more than a fixed pool of national currencies and gold subscribed by each country, unlike a world central bank capable of creating money. The Fund was tasked with managing the trade deficits of different nations so that they would not cause currency devaluations that would lead to lower imports.